Artwork Made from Old Bananas Shows Value Is Subjective

Artwork Made from Old Bananas Shows Value Is Subjective

12/11/2019Ryan McMaken

Last week, Miami art gallery Art Basel sold, for $120,000, a piece of art composed of a banana duct taped to a wall. At least one other identical piece sold for a similar amount. A third piece was priced at $150,000. The banana used in the display is a real banana, and on Saturday, a performance artist named David Datuna ate some of it.

Datuna's stunt merely illustrated what everyone should have already known: the value of the artwork had almost nothing to do with the banana itself. Its value came not from the amount of labor that went into it or from the cost of the physical materials involved. A spokeswoman for the museum summed up the real source of the item's value, noting, “He [Datuna] did not destroy the artwork. The banana is the idea.

In other words, the people who purchased the art weren't actually purchasing a banana and tape. The person who purchased the art was buying the opportunity to communicate to peers that he or she was rich enough to throw around $120,000 on a work of art that would soon cease to exist. This was a transaction that involved purchasing status in exchange for money. The banana was only a tiny part of the exchange.

Moreover, the transaction offered the opportunity for the gallery, the art seller, and the art buyer to all further increase their status by being the topic of discussion in countless news articles and discussions in social media. As was surely anticipated by the artists and everyone else in the banana sale, the media could be counted on to act as if this art was something new, outrageous, or exciting. "Art world gone mad," the New York Post announced on its front page. Hundreds of thousands of commentators in various social media forums chimed in to comment on the matter.

One wonders, however, how many times this shtick can be repeated over and over until people lose interest. Apparently: many times. After all, this sort of art is not a new thing. For decades, avant-garde artists have been using garbage and other found objects to create art. And people with a lot of disposable income have been willing to pay a lot of money for it. It's all basically an inside joke among rich people. And regular people have the same reaction over and over again.

But there's absolutely nothing at all that's shocking, confusing, or incomprehensible from the point of view of sound economics. Transactions like these should only surprise us if we're still in the thrall of faulty theories of value, such as the idea that goods and services are valued based on how much labor and materials went into them. That's not true of any good or service. And it's certainly not true of art.

Is It Garbage or Is It Art?

In fact, two identical items can be valued in two completely different ways simply if the context and description of the objects changes.

According to the Daily Mail, a 2016 study suggests that people value ordinary objects differently depending on what they are told about the objects: "According to the new research, being told that something is art automatically changes our response to it, both on a neural and a behavioural level."

In this case, researchers in Rotterdam, the Netherlands, told subjects to rate how they valued objects in photographs. When told that those objects were "art" people valued them differently. 

In other words, the perceived value of objects could change without any additional labor being added to them, and without any physical changes at all. 

The value, it seems, is determined by the viewer, and we're reminded of Carl Menger's trailblazing observations about value

Value is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men.

One moment the viewer may think he's looking at garbage, which he has likely learned is of little value. When told that said junk is really "art," the entire situation changes. (Of course, we would need to see their preferences put into real action via economic exchange to know their preferences for sure.)

The change, as both Menger and Mises understood it, is brought about not by changes to the object itself, but by changes in context and in the subjective valuation of the viewer. 

A glass of water's value in a parched desert is different from that of a glass next to a clean river. Indeed, a glass of water displayed in a museum as art — as in the case of Michael Craig-Martin's "An Oak Tree" — is different from water found in both deserts and along rivers. Similarly, the value of a urinal displayed in a museum as art — as with Marcel Duchamp's "Fountain" — is different from a physically identical urinal in a restroom. 

The Daily Mail article attempts to tie the researchers' observations to the theories of Immanuel Kant on aesthetics. But, one need know nothing about aesthetics at all to see how this study simply shows us something about economic value: it is, to paraphrase Menger, found in the "consciousness of men." 

And it is largely due to this fact that centrally planning an economy is so impossible. How can a central planner account for enormous changes in perceived value based on little more than being told something is art? 

Is a glass of water best utilized on a shelf in a museum, or is it best used for drinking? Maybe water is best used for hydroelectric power? Exactly how much should be used for each purpose? 

When discussing the problems of economic calculation in socialism, Mises observed that without the price system, there simply is no way to say that a specific amount of water is best used for drinking instead of being used for modern-art displays. Nor is the fact that people need water for drinking the key to determining the value of water. (See the diamond-water paradox.)

In a functioning market, consumers will engage in exchanges involving water in a way that reflects how much they prefer each use of water to other uses. At some moments, some consumers may prefer to drink it. At other moments, they may prefer to water plants with it. At still other moments, they may want to contemplate an art display composed of little more than a glass of water. The price of water at each time and place will reflect these activities. 

Without these price signals, attempting to create a central plan for how each ounce of water should be used is an impossible task.

Do we need to know why people change their views of object when told they are art? We do not. Indeed, were he here, Mises would perhaps be among the first to remind us that economics need not tell us the mental processes that lead to people preferring different uses for different objects, although we can certainly hazard a guess. It's unlikely that the buyer of the taped banana bought it because he or she planned to eat it.

But even if we are wrong about the buyer's motivation, the fact remains that the buyer valued the banana at $120,000 for some reason — and the value was subjective to the buyer.

Similarly, we can't know for sure why each individual values water for drinking over "art water" or vice versa. And a government planner or regulator — it should be noted — can't know this either.

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In Defense of Savings

6 hours agoPeter G. Klein

I can't recall the last time I heard something on National Public Radio in defense of savings but, there it was, in this morning's Marketplace segment on Karen Petrou's new book Engine of Inequality: The Fed and the Future of Wealth in America. Savings, Petrou asserts, are the "engine of wealth accumulation." Petrou, whose work has been discussed on these pages before, identifies the Fed's massive and unprecedented monetary expansion since 2008 as a prime driver of inequality in the US.  As she explains to host David Brancaccio:

[T]he cost of being middle, even upper-middle, class, and lower- or moderate-income, has gone way up. So all but the top 10% of Americans already have more debt than assets. We don’t need more debt, we need more employment and economic growth. And we critically need savings. That’s the engine of wealth accumulation. And right now, if you put your money into your savings account, you lose money because rates are negative in real terms, and they have been pretty much ever since 2008. Saving is a losing game. Investing is a winner’s game, but most Americans aren’t in the stock market. The top 1% of Americans have over half of our stock.

Of course, the Austrians have been arguing—long before 2008!—that the engine of economic progress, not just simply for individuals but for the economy as a whole, is capital accumulation via savings and investment, not "aggregate demand" fueled by monetary and fiscal stimulus. Petrou is interested in individual and household inequality, not economic growth. Because inequality is the topic de jour among the intelligentsia, her book is getting a fair hearing. It is certainly true that the Fed's policies have exacerbated inequality and, while that is not the most important critique of the Fed or of central banking per se, it seems to be gaining popularity. Even Ben Bernanke felt compelled to respond to the criticism, albeit unconvincingly. 

Austrians including Zoran Balanc, Karl-Friedrich Israel, and Louis Rouanet have written recently about the effects of central banking on inequality. Petrou's book should help to shine more light on this debate. 

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PC 101: What's Woke In English Is Sexist in Spanish

03/02/2021Mark Tovey

Emma Corrin has won the Golden Globe Award for Best Actress in a TV Series for her portrayal of Princess Diana in Netflix’s The Crown.

Confusingly, Miss Corrin rejects the use of the term “actress,” like so many left-wing luvvies.

That didn’t stop her accepting the award, of course.

What’s the rationale for eliminating the word “actress”? Well, UK newspaper The Guardian explained in its 2010 style guide that it is sexist to distinguish between genders when referring to professions, as it harks back to a "time when professions were largely the preserve of one sex (usually men)."

But isn’t it a bit disconcerting to refer to an actor winning the Best Actress award?

What if I told you that it is supposed to be disconcerting, bamboozling, and alienating?

You see, politically correct language doesn’t follow a clear logic. Instead, it is designed to simply be contrary to common practices.

It is a signaling mechanism to separate the “insiders” from the “outsiders.”

I realized this after moving to South America and becoming proficient in Spanish—a long and painful process, as I didn’t start until I was twenty-four, by which point I had lost the brain plasticity of childhood.

I was disappointed to find that the “woke” politics of intersectionality had made the journey from the English-speaking world to South America long before I touched down in January 2018.

However, when it comes to politically correct language, social justice warriors (SJWs) south of the Mexican border have not been able to simply copy the US’s handbook. Clearly, the peculiar mandates of “newspeak” cannot be mapped precisely from English onto Spanish, which is distinct in its vocabulary and grammar.

In fact, on the question of gender-neutral professions, Spanish-speaking SJWs have had to take precisely the opposite stand.

In Argentina, the socialist vice president Cristina Kirchner made headlines in December 2019 when she called an opposition party senator sexist for not using a feminized title. 

In Spanish, most nouns signal male or female by ending in o or a, respectively (a male doctor would be el médico, a female doctor la médica).

However, presidente is one of those rare nouns that does not have a gender, and so—following the logic of politically correct speech in English—you would imagine that followers of “woke” politics in Argentina would be happy about that.

But no. Vice President Cristina Kirchner instead demanded that an a ending be substituted and called her colleague a sexist when he protested at this bastardization of the Spanish language.

He eventually conceded: “Perdón, presidenta.”

Could there be any clearer example that new-fangled, politically correct speech is just an arbitrary signaling mechanism? They want to watch you struggle through the growingly treacherous lexical quagmire.

And if at any moment you should trip and fall, you’ll be revealed for the outsider that they always knew you were. Maybe you’ll even get “canceled” if you’re unlucky enough to work for an organization that has capitulated to these unthinking bullies.

My advice? Learn a foreign language. Bilingual brains are less malleable to “newspeak,” as they see the inevitable inconsistencies created by a system of arbitrary verbal diktats, which cannot be neatly imposed on distinct lexical and grammatical structures.

In addition, psychologists have found that people who learn a second language are less susceptible to emotional manipulation in that language, as they have less of an emotional connection to the words. (This is easily demonstrated by thinking about how swear words in foreign languages do not evoke feelings of offense.) 

So, get on a language-learning app. And let’s all raise a glass to Miss Corrin, a skilled actress and deserving winner of her Golden Globe.

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Happy Birthday, Murray!

03/02/2021David Gordon

Today would have been Murray Rothbard’s ninety-fifth birthday. He was an unforgettable friend whose immense knowledge of many different fields was unsurpassed in my experience. In a lecture on the Austrian theory of the business cycle, he mentioned the common objection that the expansion of bank credit might have no effect if investors anticipated trouble. After the lecture, I asked whether Mises had answered this point. He said, “See his response to Lachmann in Economica 1943.” I often went to used bookstores with him, in both Palo Alto and Manhattan, and listened to him as he commented on nearly every book on the shelves. When he was a student at Columbia, he admired the philosopher Ernest Nagel, who he said would always encourage students to do new work. Murray was like this himself. He constantly encouraged students to work on Austrian and libertarian topics. As I think about him today, another story comes to mind. He would stay up very late and also get up late. Once at a conference, I stayed up until 1:30 in the morning listening to him talk to a group of people. When I told him I had to leave, he said, "The night is still young!" His support for me was never failing, and I owe him everything. If only he were still here now, to guide and instruct us!

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The Fed Sets the Tone for 2021

02/25/2021Robert Aro

The Federal Reserve set the tone for 2021 with the release of the year’s first Federal Open Market Committee (FOMC) meeting minutes last Wednesday. With the national debt approaching $28 trillion and covid still not eradicated, there appears to be no intention of ending accommodative policies any time soon. However, the Fed still has a way of never disappointing when it comes to what is discussed behind closed doors. As the minutes reveal, they found:

The emergence of a narrow Democratic majority in the Senate bolstered investor expectations for additional fiscal stimulus, prompting upward revisions to forecasts for economic growth this year.

This logic naïvely assumes a Republican-controlled Senate wouldn’t have the same or similar “additional fiscal stimulus” as the Democrats. It also assumes fiscal stimulus leads to economic growth. Should we continue along this train of thought, we may conclude that any Senate that favors perpetual fiscal stimulus is best since it creates perpetual growth!

We also see the usual Fedspeak, surprising only in its inventiveness:

The Committee’s employment and inflation objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary…

This is difficult because it falls back to the idea of a tradeoff between inflation and unemployment. Of course, the problem with this “theory” is that sometimes it works and sometimes it doesn’t. How such an inconsistent theory can ever be relied upon, much less used as a planning tool to form the Fed’s primary mandate, remains a mystery.

And for those unaware, the Fed undertakes desk surveys ahead of its FOMC meetings. The surveys are carried out by the New York Fed; they ask a variety of primary dealers, i.e., those firms able to trade directly with the Fed, questions. Then, a survey is conducted with market participants, comprised of institutional investment firms. According to their expert opinion:

The Desk survey results indicated that a majority of market participants anticipated that the pace of net asset purchases would remain stable for the remainder of the year and slow around the first quarter of 2022.

According to plan, the Fed will continue its $120 billion of asset purchases for twelve more months, meaning we can expect at least an extra $1.44 trillion of US Treasurys and mortgage-backed securities added to the balance sheet a year from now. This assumes there will be no more “additional fiscal stimulus” packages or any surprises which warrant the Fed to take on more forceful actions. The only thing more troubling than the best-case scenario of adding another trillion to the balance sheet is the erroneous widespread belief that the Fed will slow down its purchases ever again.

Last, but not least, the issue of inequality as it pertains to the black and Hispanic communities was addressed:

Many participants stressed that sustained support from fiscal policy would help address the hardships faced by these groups and that monetary policy could also help by promoting the economy's return to maximum employment and price stability.

Here they suggest that the solution to poverty and living in an unfair society revolves around asking politicians and central bankers to intervene even more in the lives of those in need. Naturally, this requires the bureaucracy to get paid for its interference. The public is then left to hope that planners will apply the appropriate amount of intervention, calculating the incalculable and doing whatever it takes to make society more prosperous.

Targets like “maximum employment” and “price stability,” are used, because they show that the Fed is goal oriented. The Fed will claim to fight racial inequality through their support, but their support can only amount to increasing the supply of money and credit, and deciding who gets access to this new money first. If these money creation schemes actually work, one would think the Fed’s goals would have been met by now. Can we really trust that by Q2 2022, as the survey says, the expansion will slow once the Fed finally hits its targets?

What the FOMC meeting ultimately fails to recognize is that by the time we get to March 2022 the only things to change will be the size of the Fed’s balance sheet, the money supply, and the increase in hardships faced by the very same groups the Fed is trying to help.

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No, There's No Reason to Feel Sorry for Robinhood

02/24/2021Ryan McMaken

As the dust settles following the GameStop frenzy in late January, it is clear that one of the biggest losers in the controversy in Robinhood. Robinhood is a trading app that markets itself as a platform for ordinary retail investors seeking to buy and sell securities without the cost of an expensive broker. Or, more romantically, Robinhood claims it has "democratized" investing.

But things didn't play out that way for the company. As buying of GameStop shares intensified in January 28, Robinhood (among other brokerages) halted the buying of GameStop (and some other shares, such as AMC) citing an inability to post sufficient collateral at clearinghouses. This is how a recent Forbes article summed it up

With the ability to easily buy more and more stocks using Robinhood’s app, the pile-on became a gold rush, as more speculators flooded to the platform to get “in” on the bounty. News about the booming GameStop and AMC stocks spread far and wide.

That’s where the trouble started.

Robinhood doesn’t directly execute customer trades.

Instead, it directs the transactions through a clearinghouse, which pays for the trades as the information it gleans lets it more effectively direct its own trading decisions.

Buyers and sellers are quickly matched digitally. However, the “settlement” of the trade—the actual transfer of payment and shares between parties—typically takes two days after the transaction. So clearinghouses require brokers, such as Robinhood, to have enough money on deposit to ensure that a trade can clear—even if the broker is waiting for a separate payment from a client to finish processing.

Given high demand for the shorted stocks and the climbing prices, Robinhood’s deposit requirements suddenly jumped ten-fold, according to a company blog post.

So Robinhood “put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on.”

The fact that this move also helped billionaire short sellers at hedge funds was not lost on the general public, and the many immediately began to accuse Robinhood of intervening to help Wall Street oligarchs at the expense of ordinary investors. 

Was this the case? 

It doesn't matter all that much. What matters is that Robinhood was unable or unwilling to serve its customers in the way that Robinhood claimed it always would. 

According to Robinhood's narrative, its management had no other choice. And this has led some commentators to defend Robinhood, claiming that it was a victim of circumstance and it wasn't really conspiring against ordinary investors. 

But so what?

Even if Robinhood was being perfectly honest with everyone, the fact that it had to cut off its own customers from promised services reveals to us that Robinhood's management is at the very least incompetent and was unable to plan for future events which would have been anticipated by truly insightful or competent entrepreneurs. 

The company's ineptitude was showcased in a recent discussion between Rob Portnoy and Robinhood CEO Vlad Tenev. Tenev bragged that the company's block on further GameStop purchases meant "we were able to protect the firm." But Portnoy correctly pointed out that if "protecting the firm" means "screwing over" the customers, there's something very wrong going on over at Robinhood. We have a word for "protecting the firm" by harming customers. It's "exploitation," or "ripping people off." In response, Tenev threw out some bromides about how "if the market breaks down" they can't serve their customers. This assumes, of course, that letting investors buy what they want constitutes a "breakdown" in the marketplace. That's a rather bizarre assertion. Ultimately, even if we assume Robinhood was in no way conspiring against anyone, the fact remains that—as pointed out on CNBC—Robinhood put itself in a scenario it should not have put itself in. 

In other words, doing business with Robinhood now is an "enter at your own risk" sort of proposition. It's clear that in spite of all of Robinhood's claims about offering the everyman a way to participate in the markets, investors who do business with Robinhood can't trust that it will actually deliver the services it claims it will deliver.

That's as good a reason as any to forever ditch any company that acts with such ineptitude in giving the customer what he or she wants. 

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ACB's Betrayal of Trump Continues the Red Pilling of Conservative America

02/24/2021Tho Bishop

Listen to the Audio Mises Wire version of this article.

If we were searching for a reason for political optimism in 2021, we were delivered another reminder of the degree to which mainstream American conservatives are waking up to what the state truly is. The latest institutional betrayal of Republican voters came from the Supreme Court, which rejected considering a lawsuit challenging late changes to Pennsylvania’s election process. The majority that voted to dismiss consideration included Trump nominees Brett Kavanaugh and Amy Coney Barrett.

Are Notorious ACB shirts getting treated like the jerseys of an athlete who just jilted a fanbase?

This was predictable, of course. Not because there wasn't a substantive issue worth addressing: the degree to which state courts can interject themselves in election law seems like a valid question—regardless of one’s opinion about the 2020 election. As Justice Clarence Thomas noted in a particularly blunt dissent, this was simply the SCOTUS avoiding the issue entirely:

That decision to rewrite the rules seems to have affected too few ballots to change the outcome of any federal election. But that may not be the case in the future. These cases provide us with an ideal opportunity to address just what authority non-legislative officials have to set election rules, and to do so well before the next election cycle. The refusal to do so is inexplicable.

Of course, this is precisely the sort of behavior that we have come to expect from spineless politicians, and that is what you find on America's highest court—politicians in robes. While it’s become more fashionable lately to mention this in recent years thanks to the particularly hammy performance of John Roberts, this has long been the case.

As Ryan McMaken has explained:

The truly political nature of the court is well documented. Its politics can take many forms. For an example of its role in political patronage, we need look no further than Earl Warren, a one-time candidate for president and governor of California, who was appointed to the court by Dwight Eisenhower. It is widely accepted that Warren’s appointment was payback for Warren’s non-opposition to Eisenhower’s nomination at the 1952 Republican convention. The proposition that Warren somehow transformed from politician to Deep Thinker after his appointment is unconvincing at best. Or we might point to the famous “switch in time that saved nine[,]” in which Justice Owen Roberts completely reversed his legal position on the New Deal in response to political threats from the Franklin Roosevelt administration. Indeed, Supreme Court justices are politicians, who behave in the manner Public Choice theory tells us they should. They seek to preserve and expand their own power.

The court, jealous of its power, and reluctant to hand down decisions that might actually cause the court to lose prestige, is at times careful to reflect the majority opinion regardless of how atrocious it might be. To see this, we need look no further than Korematsu v. United States[,] in which the court declared it perfectly legal to round up American citizens and throw them into concentration camps.

The court forever plays a careful balancing act with both the public and with other branches of the federal government in which i[t] continually pushes the bounds of federal power without rocking the boat to the point of calling its legitimacy into question among the majority of the population. Naturally, Congress and the presidency, themselves committed to untrammeled federal power, have no problem with most of this on most occasions, except perhaps in the details.

It is the last paragraph that brings us to this week’s decision. Regardless of the merits of the argument, there can be no tolerance for any major institution that invites questions over the legitimacy of the 2020 election in Joe Biden’s Americans. Particularly not one that resides in the current war zone of the American capital.

Already there are agents of the corporate press trying to spin Justice Thomas’s dissent as an act of sedition. I would be surprised if no Democrat ends up calling for his impeachment over the issue.

In terms of the incentive for a justice to build up their own prestige, none had more to gain from ruling against Florida’s first president than Kavanaugh and Barrett. Kavanaugh’s lack of principles has long been obvious to anyone who followed his career in the Bush administration. It is a testament to the repulsive treatment he received from the corporate press that they managed to make a Yale Law alum turned Beltway lawyer sympathetic.

It is also understandable to see how both could be convinced that this decision was a practical necessity for their historical reputations. In the view of America’s most powerful institutions, there is no greater stain than having Trump as a benefactor. The only way to be forgiven for this sin is to become politically useful in stopping him. With this case, the last legal challenge of 2020 is likely done.

This is yet another example of the unique value of Trump’s presidency. The failure of a conservative-aligned Supreme Court to defend Donald Trump is being properly recognized by many Americans as showing that it also cannot be trusted to defend them. Many who believed that a “conservative legal movement” could effectively defend the Constitution in DC—if only Republicans could get a true majority!—have now lost their innocence.

This invites an important question: What happens when yet another governing institution loses the faith of a large portion of the American public? While Congress has long been viewed as dysfunctional and the popularity of the presidency has largely been partisan, the Supreme Court has tended to be held up as a uniquely noble governing body. Now, we see its legitimacy questioned with increased frequency on both the left and right.

While this may be a bitter red pill for some to swallow, ultimately it is necessary medicine.

The growth of the American empire has always been dependent upon convincing the public that it is acting in its interest. When large portions of the population begin to recognize that this is an obvious lie, that the empire ultimately serves the interests of a privileged few, governing becomes more difficult. As Jefferson noted, the first step to opposing imperial rule is for people to recognize that they no longer consent to a government that is hostile to their lives, liberty, and pursuit of happiness.

In America today, there are 50 million+ Trump supporters who believe Joe Biden is a president imposed on the nation—potentially with the help of foreign powers—armed with a Democrat-controlled legislature and a Supreme Court whose credibility is now compromised.

Yet another reason why secession is becoming popular.

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Professor Philipp Bagus on the "Political Economy" of Covid Hysteria

02/24/2021Jeff Deist

Professor Philipp Bagus has published a remarkable article making the case for developing a political economy to help us understand the 2020 coronavirus and similar events prone to mass hysteria.

The article, titled "COVID-19 and the Political Economy of Mass Hysteria,"1 appears in the International Journal of Environmental Research and Public Health. Happily, it is available online in full from the Swiss outfit MDPI (which is committed to open access scholarly publishing in the face of lingering and absurd twentieth-century paywalls for most academic journals). Bagus, along with coauthors José Antonio Peña-Ramos and Antonio Sánchez-Bayón, argue that digital media effectively boosts and weaponizes information provided by authoritative state sources in times of crisis.

The invocation of "public health" tends to suspend the public's capacity for disbelief; after all, who wants to be sickened by an illness which respects no borders or strata of society? And why would politicians or media figures lie about a strange new virus emanating from China? It also tends to suspend the public's objections to plainly illegal or dubious extralegal measures, such as business closures and school shutdowns. It makes us forget about tradeoffs and alternatives, at least temporarily, because life, or at least our health, is at stake. This is especially true in the early months of a crisis, what we might call the "fog of war."

But as Bagus and company make clear, political and economic realities do not magically vanish during a pandemic. In fact, the enduring tensions between economics and politics loom ever larger when states take aggressive steps to keep citizens at home and substitute fiscal or monetary stimulus for economic activity. Public health and the broader welfare state—especially public healthcare systems—cannot be neatly separated. And the bigger the government, the more profound the magnitude of policy errors. Politicians, per Hans-Hermann Hoppe, have an everlasting tendency to think short term by their very nature. And they are at their worst when emergency powers are seized from a willing public uninterested in legislative processes.

Bagus's framework for the political economy of covid emerges when we begin to understand the politics and the economics realistically and in tandem. Mass hysteria imposes tremendous costs across society, both in human and economic terms. Tradeoffs cannot be avoided, even if they are not much discussed in popular media. Alcoholism, suicides, untreated illness, and vast psychological harms all must be considered in addition to the staggering and almost unknowable financial costs of lockdowns. Hysteria makes it all worse. The paper identifies political institutions, politicians themselves, and media actors as having colluded to intensify the degree of hysteria in society over covid during the past year:

  • States banned or limited activities like dining, sports, and socializing;
  • States approached the perceived threat from the virus in a centralized way;
  • Heavily politicized and state-licensed media tended to promote viewpoints provided by government officials;
  • Negative news stories were bolstered when provided by seemingly authoritative public health officials;
  • Politicians may well haved benefited by instilling fear in the population; and
  • Politicians had every incentive to overstate the threat of the virus, as they don't bear the costs

The close nexus between political actors and dominant media platforms creates a ripe environment for covid hysteria simply because the incentives and tools are so suited to it. As the authors put it:

Self-interested politicians face an asymmetric pay-off. Underestimating a threat and failing to act has great political cost, as politicians will be held responsible for the disaster caused by the threat they underestimated. By contrast, an exaggeration or even invention of a threat and bold state intervention are politically more attractive. If the existential threat claimed by politicians really turns out to be such a great danger, they can be celebrated as heroes if they enacted bold measures. If the costs of these measures ultimately turn out to be excessive compared to the actual danger, then the politicians do not have to bear the cost of the wrong decision but can pass it on to the rest of the population. Politicians enjoying a guaranteed income therefore have an incentive to exaggerate a danger and to impose exaggerated measures, also called policy overreaction, which is conducive to the emergence and growth of mass hysteria.

In sum, property rights tend not to be effective limits in curbing mass hysteria in a welfare state. Moreover, the state may inhibit the natural mechanisms that reduce stress and hysteria. The centralized nature of the state increases group and conformity pressures. Politicized mass media and negative messages from official state agencies can further increase psychological pressure. Finally, the state may intentionally want to increase anxiety, and politicians have the incentive to make bold decisions and exaggerate the threat.

Big government and big media go hand in hand, hence the public overreaction to covid. After all, collectives by their very nature do not allow for a variety of viewpoints or approaches to problems. Bagus and his coauthors have given us a wonderful and original exposition, a new way of looking at Edward Bernay's old concept of "manufacturing consent." They have also given us the solution: market incentives, property rights, and decentralized mechanisms for discovery. Top-down statecraft cannot produce competition for solutions, but instead acts as a blunt and inefficient instrument of bad policy.

Or as the authors state, "there exist important limits for a mass hysteria to harm life and liberty in a minimal state."

  • 1. Philipp Bagus, José Antonio Peña-Ramos, and Antonio Sánchez-Bayón, "COVID-19 and the Political Economy of Mass Hysteria," International Journal of Environmental Research and Public Health 18, no. 4 (2021): 1376, https://doi.org/10.3390/ijerph18041376.
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Pennsylvania's Centrally Planned Vaccine Plan

Pennsylvania’s Acting Secretary of Health Alison Beam said in a press release on February 12 that only four groups are allowed to handle distribution of Covid-19 vaccines going forward: hospitals, federally qualified health centers, county health departments, and pharmacies in effect shutting out primary care doctors from Covid-19 vaccine distribution.  In response, the Pennsylvania Academy of Family Physicians, Pennsylvania Osteopathic Medical Society, and the Pennsylvania Chapter of the American College of Physicians (physician group) collectively expressed disappointment in the Acting Secretary of Health’s misguided allocation changes to the state’s COVID-19 vaccination distribution plan, removing primary care providers from the list of those permitted to administer the COVID-19 vaccine

Their press release states:

Without sound justification and demonstrating a lack of understanding in the way most Pennsylvanians receive their health care, the Administration is making a woeful mistake by cutting out primary care physicians as eligible providers.

Justifying her action acting Secretary Beam said.

“As there is very limited COVID-19 vaccine supply compared to demand, every possible effort must be made so that the vaccine received in the commonwealth is effectively administered. To achieve this goal, I am issuing an order outlining appropriate steps and recognized best practices to ensure vaccine providers are effectively meeting the goal of vaccinating Pennsylvanians and creating a healthy Pennsylvania for all.”

While acting health secretary Beam’s intention of making use of every dose of the Covid-19 vaccine is commendable, what is so puzzling about this decision is the inconvenient fact that one of the most successful vaccine rollout by percent of people vaccinated is in the neighboring state of West Virginia.  West Virginia, a small and mostly rural state with a large elderly population, quite similar to Pennsylvania in many aspects, showed how to roll out Covid-19 vaccinations successfully. West Virginia is now being hailed as a vaccination success story, with 85 percent of its delivered doses already used, according to data from the Centers for Disease Control and Prevention, putting it second in the country behind North Dakota.  A key part of the strategy in West Virginia was the decision not to activate a federal partnership with pharmacy chains and instead relying on independent drugstores

Dr. Clay Marsh, West Virginia's coronavirus czar and vice president and executive dean of health services at West Virginia University may have read some articles from the Mises Institute when he states “But we absolutely rely on the creativity and the innovation of all of our people. Because we don't want to rely on external resource requirements for us to be able to do what we need to do.” 

Primary care physicians have plenty of experience administrating immunizations across a wide range of age groups.  They are in the business of connecting and caring for people at the local level on a daily basis.  They are best equipped to pull up a list of patients who qualify for the Covid-19 vaccine at each phase of the rollout.  But with the new order by the acting health secretary Beam, primary care physicians are being sidelined.  West Virginia has shown that good personal contact is key to the whole effort.  Most people in rural areas would rather get vaccinated by their doctor that they know and trust than by large impersonal semi-governmental vaccination centers.  According to the Pennsylvania Department of Health the list of approved vaccination sites will shrink from about 780 providers statewide to only 200 to 300 that will continue receiving doses from the state. 

In their press release the physician groups conclude:

Many people will turn to their primary care physician for guidance as to whether they should get the vaccine. Physicians, nurses, and physician assistants who provide care in private practices are trusted by their patients. This is especially noteworthy when considering those patients who may otherwise be reluctant to get the vaccine. A pharmacist or other provider who is unknown to the patient will not be able to provide that same level of confidence. Additionally, many older Pennsylvanians may believe that they will receive the vaccine in their primary care physician’s office. The new order creates yet another hurdle for a demographic who is already struggling with navigating the vaccine distribution landscape.

A main reason and good reason for the change in policy is to ensure all vaccine doses provided are administered and not wasted.  However, on February 17th acting health secretary Beam had to address a major vaccine snafu when COVID-19 vaccinations for up to 115,000 Pennsylvanians have to be rescheduled. According to Beam, the Moderna vaccine was inadvertently administered as the first of the required two shots when the serum was earmarked for the second shot instead.  Pharmacies often don’t have more than a day’s notice about shipments, which complicates scheduling people for vaccinations.  Each vial of the Moderna vaccine has 10 doses, and once the vial is open, the vaccine lasts only five hours. After five hours the vaccine has to be discarded, only a minority of primary care physicians can manage the logistical challenges of such a strict timeline.

Another reason for the change by acting health secretary Beam and an order by Governor Wolf is to expedite the rollout.  Pennsylvania’s COVID-19 vaccine program has been marred by glitches from the start.  It has been criticized over how fast its allocated shipments are administered ranking Pennsylvania in the middle while West Virginia ranks third according to the New York Times tracker.  

The glitches in the vaccine rollout in Pennsylvania are even more troublesome by the fact that President-elect Joe Biden tapped Pennsylvania Health Secretary Dr. Rachel Levine to be his assistant secretary of health in the U.S. Department of Health and Human Services.  Dr. Levine was in charge of the Covid-19 response in Pennsylvania and Pennsylvania is now trying to untangle its botched vaccine rollout under her leadership.  What can the rest of the country expect once Dr. Levine is in charge of a larger rollout?  

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Lockdowns Destroyed the Democracy of the Marketplace

"We're closed."

These are terrible words to see in front of your favorite small shops and services when you are in the mood to purchase something you desire, or ready to pay for something you wish to avail of. This feeling is made even worse emotionally when you know the closures are forced and permanent, and that you sadly and ultimately could not do anything about it.

It may not be the case that these businesses were bad and died a natural death, and may in fact be quite the contrary. You are probably a dedicated customer, and one among many that happily voted to keep those enterprises running by paying for what they offered, because you and others genuinely liked them. These businesses could have thrived under normal circumstances.

However, when a business was one of the casualties of regulations that limited its ability to operate, and when you were forced to stay at home and became unable to spend on it as often as before, you were essentially denied the ability to vote for its continued existence.

A diverse and plentiful number of micro, small and medium enterprises makes up the bulk of any healthy economy. It is normal to see that such entities comprise the vast majority of business activities in countries around the world. The economy has to thrive at different levels to cater to the tastes and needs of people from all walks of life. This natural phenomenon has been demonstrated consistently over the course of human history.

These days, the depressing news that hits consumers around the world is that of the mass closure of smaller businesses. These would be last seen offering final services that could not even be given fully due to limitations imposed upon them. These are the stores that found themselves severely hampered by the policies governing the economy created in the wake of the pandemic, through no fault of their own. While some undoubtedly survived by adapting to circumstances, as competent entrepreneurial entities should, many did not.

If a business is limited, for example, to only be able to serve an arbitrarily small number of customers at any given time, how can it hope to get by as it normally would? Yet such limitations exist around the world, decreed in the name of stopping the spread of COVID-19. For example, shops that used to be able to tend to twenty customers at once could have had their maximum number of potential clients reduced to just five at a time.

What this does in practice for countries with large populations is that customers would sometimes have to line up outside shops or gather in large crowds for a long time anyway due to space limitations. In that case, was the objective of the policy, presumably to create social distancing, successfully met? That said, these cases are supposed to be the lucky ones. Some businesses could not even reopen at all due to other such restrictions that worked unfavorably against them.

Disasters and market fluctuations happen, sure, and these sometimes trigger the closure and death of certain businesses. Risk and uncertainty are always integral parts of lived experiences, and we make decisions and judgements based on our perception of them. But the very problem posed here is that closures enabled through harsh restrictions could have been avoided entirely. Some business deaths were preventable, and it would be a disservice to simply blame everything on the pandemic.

In these times, where consumers are stuck at home and unable to spend on the goods and services they would otherwise like to avail of, people are essentially barred from the democracy of markets. On the consumer side, it has become difficult to patronize favorite businesses as in pre-pandemic times. On the producer side, it has also become difficult to provide goods and services in a way that allows for continued and efficient operations in a “pandemic market”.

With many small businesses tragically and irreversibly gone —and more to follow suit as countries continue to scramble to get their acts together— we need to create a healthy and competitive global economy. We should start by remembering the importance of enabling market democracy.

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The Failure of Britain's Railway "Privatization"

02/23/2021Paulo Ferreira

It is no surprise to the daily English commuter that British Railway has always fallen short of providing adequate services to it’s customers. Dissatisfaction is at an all-time high, with high ticket fares and poor timing schedules. Rail user satisfaction at 10-year low. To avoid bankruptcy, the state provides subsidies and security bonds to prevent job losses – albeit bonds incur debt that will have to be paid off - and there has been a conscious effort on successive governments in terms of pushing up ticket fares, so that the burden of taxation does not fall entirely on the taxpayer.

This disaster is the offspring of the botched "privatization" of rail which has since evolved into a monopoly of the railway system in Britain. Privatization is only effective if there are other players on the market competing against each other—or at least the possibility of entry for other firms into the market. This helps to keep prices down as the possibility of competition drives providers to better serve customer needs and wants.

With the introduction of the 1993 Railway Act, the Conservative government at the time initiated the privatization of rail by establishing Railtrack, becoming the sole owner of infrastructure in the entire country, laying out the rules for train operating companies. Train companies – national or international – would own and deploy various rail franchises. Rolling stock operating companies provide the necessary locomotives, and freight operating companies, whose primary responsibilities include transporting cargo across the national network.

The main problem holding the industry back however is the lack of competitive infrastructure, for not only does a geographic monopoly exist, but also an overly complex, fragmented system interdependent on a myriad of factors, a tight, bureaucratic labyrinth that drowns out competition. All signals, levels crossings, bridges and tunnels are held on a leash by the Leviathan of rapid transit: Network Rail – the successor to the unsuccessful Railtrack - a public company answerable to the Department for Transport, financing and maintaining the rail tracks by redirecting profits and dividends earned during the year for reinvestment. Strictly speaking, despite privatization, the state reversed their decision and have a final say on how British tracks should be run. The dictum “meet the new owners, same as the old ones” can justly be applied here.

Trains in less dense routes and stations are split into various rail franchises, beginning with a private company placing a bid to secure contracts that allow them to operate on specific routes, as stipulated by the contracts complying with public law regulations. The government takes into consideration each candidate in terms of which company can provide the best passenger satisfaction, as well as optimistic projections of future revenue. The winner, before being awarded the contract, must pay a premium to the government and the projections forecast for the future also increases the premium. Each area has different routes and varying government specifications laying out the ground rules, including train services and station upgrades. However, many of these contracts end up becoming unprofitable due to a lack of demand in certain regions of the country, and private companies owning the rail franchises default, being liquidated as a result. In areas of a less dense population, local monopolies are born, giving the companies a bargaining chip on the region.

It should be noted that various foreign governments dominate several UK rail franchises. For example, Deutsch Bahn (the franchises in question include Arriva Trains Wales, Chiltern Railways, CrossCountry, Grand Central and Northern) is financed by the German government, being the sole shareholder. Therefore, should they cut their investment on Deutsch Bahn would have the detrimental consequence of cutting down the number of trains available for usage to the British public. Other foreign governments too own majority stakes in railway companies, owning nearly all rail franchises in the UK.

Before privatization, economic liberal think tanks such as The Centre for Policy Studies and the Adam Smith institute put forward several proposals. The one eventually adopted by the Conservatives was the one put forward by the Adam Smith institute: different companies running trains. It would have been wiser had the State instead decided to heed the advice put forward by the Centre for Policy Studies, proposing that Britain should go back to the Victorian era structure of a dozen private companies controlling railway.

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